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Required Minimum Distributions - Turning Details into Opportunities

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I remember very early on in my insurance career hearing a sales person say: “Get the money first and straighten out the details later.” Being the type of person that believes the money is in the details, I struggled with this thought process then, and I still do today. I am one of those detail-oriented people that can drive some of you, simply put, nuts!

But paying attention to the details pays off. One detail of an annuity contract that can offer opportunity is required minimum distributions — or, being an industry of acronyms and abbreviations, the dreaded “RMDs.”

RMDs: the details

  • Tax-deferred earnings are not indefinite for anyone. Individuals in qualified retirement vehicles, including most individual retirement accounts, eventually have to take required minimum distributions from their applicable accounts annually.
  • Typically, the very last day for taking the first RMD is April 1 of the year following the year in which the account owner reaches age 70 1/2 .
  • If taking the first distribution on April 1, the account owner must also consider that the second distribution must be taken by December 31 of the same year, thus having two RMDs in the same tax year.
  • If the account owner overlooks, forgets or doesn’t take an RMD he or she will pay a significant 50 percent tax penalty on the amount that should have been withdrawn.
  • There are several other rules and/or exceptions concerning RMDs that can further complicate understanding them and avoiding a 50 percent penalty mistake. A trusted tax advisor should also always be consulted.

Seeking opportunity

So where’s the opportunity? Read on.

While many of us may have entered this business as a way to earn a living or pay our bills — or perhaps even by complete accident — we stay for a reason. From talking to people in this business for over 33 years now, I believe that reason goes well beyond “getting the money.” We stay because of the feeling we get when we fulfill our obligation to serve our clients by making a difference in their life. Long after the commission check has been cashed (probably today used to fill up our car with gas to get to the office), the feeling we get from making a financial difference in someone’s life will still be around. It’s the fuel that keeps us going when the paperwork, changing regulations and, yes, even when those details get us down.

Earlier, I revealed that I’ve been in this industry for 33 years. Perhaps you have, too. (Of course, we both started when we were 8.) How many clients do you have now? How many of those are nearing 70 1/2 ? Dust off those files and look through them. Who did you help 5 years, 10 years, or maybe even longer ago with their retirement planning? What qualified money did they have? Did you sell them an annuity with qualified money? RMDs impact those, too.

Get your facts together, educate yourself and then pick up the phone for a courtesy call. Remind them of the required minimum distribution guidelines. Tell them about their options. Ask them what more you can help them with. By the way, this courtesy call is a great opportunity to ask them about the kids. How old are they now? If Mom or Dad is reaching 70 1/2 , I would bet their kids could be in their mid to late 40s, and should be thinking about their own retirement plans. You just proved your value by potentially saving their parents a 50 percent penalty. Couldn’t that help secure the kids as clients, too, and also their friends or perhaps the kids of Mom and Dad’s 70-year-old friends? You know how that referral thing works, right? There is money in those detail hills!

Laura Hahn is Managing Director – Annuity Center for The Marketing Alliance (TMA). Headquartered in St. Louis, Mo., TMA is one of the largest organizations providing support to independent insurance brokerage agencies, with a goal of providing members value-added services on a more efficient basis than they can achieve individually. Ms. Hahn can be contacted at 314.275.8713 or [email protected].